Inflation and Newcomers in Canada

For newcomers and international students arriving in record numbers, it’s helpful to understand how the current inflation rate in Canada can affect how much you pay for housing, groceries, transportation, and other expenses. Staying informed on inflation can help you manage your finances and anticipate changes. Keep up to date with the latest changes in order to manage the cost living in Canada.

For the second consecutive time, inflation in Canada dropped below 3 percent. In February 2024, the country’s inflation rate peaked at 2.8 percent. That’s a trend in the right direction, prompting many (including newcomers and international students) to ask, “When will the Bank of Canada (BoC) initiate interest rate cuts?” 

The current BoC is set at 5 percent.

Tiff Macklem, the BoC governor, has held fast to the theory that interest rates must hit the bank’s target of 2 percent and remain there before cuts begin.

Rapid population growth continues

Still, January’s 2.9 percent and February’s 2.8 percent have generated hope that cuts will begin and lower borrowing costs, the price of commodity goods, and mortgages. 

Statistics Canada has released the latest data showing that the unemployment rates in February were 5.8 percent compared to 5.7 in January.

Year-over-year, Canada’s population grew by 1,031,200 people, but employment rose by only 368,000 jobs.

The population growth in February 2024 and January 2024 was the highest in Canadian history.

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The Canadian government has set a goal to settle (or even exceed) 485,000 immigrants in 2024. This will increase to 500,000 in 2025.

Statista Canada estimates that of the 1,27 million immigrants who will be added to the population by 2023, 471 800 will be permanent immigrants and 804 900 non-permanent resident (NPRs).

Gasoline price has little impact

StatCan also highlights the fact that 2,66 million NPRs will be living in Canada by January 1, 2024. This includes 2,33 million permit holders, their families and 299,000 asylum seekers with or without work or education permits.

As for February’s inflation numbers, most economists expected it to be 3.1%. The following factors are affecting the rate in February:

• Internet service prices have decreased by 3.2 percent
• Canadians with a cellphone subscription saw their cell phone plans drop by 26.5% from the previous year
• Clothing and footwear prices dropped by 4.4 and 5.3 percent respectively.
• In February, the price of food bought at grocery stores increased by 2.4 percent on a 12-month-basis. This is down from 3.4 in January. (Grocery prices peaked at 11 percent in the years 2022 and 2023).

• Gasoline prices jumped an average of 4 percent in February from January (that’s why economists forecast a higher rate of overall inflation).

• Housing costs in Canada continue driving inflation. Mortgage interest (up by 26.3%) has been the biggest factor.

Rentals.ca reports that the average rent in Canada for all residential property types was $2,193 in Febraury. That’s an increase of 10.5 percent year over year and the fastest annual growth rate since September 2023. 

Rents on all types of property decreased by 0.1 percent in February.

A one-bedroom apartment is popular in Vancouver and Toronto “Gateway”Rents in the cities for immigrants are $2,653 and 2 495 respectively. 

Rent inflation in Canada is a result of immigration

“Rent continues to soar,”You can find out more about this by clicking here. Derek Holt, Scotiabank‘s Vice President and Head of Capital Markets Economics. “Likewise for shelter costs that account for about one-quarter of the CPI basket excluding mortgage interest. And no, the BoC cannot just ignore one quarter of the basket.”

Rents in Canada have been affected by the rapid increase of immigration. 

Wolf Richter of WolfStreet.com explains: “the Bank of Canada, in discussing its interest-rate-policy decisions and inflation, has been pointing at the surge of immigrants as the source of rent inflation, which has caused services Consumer Price Index (CPI) to be stickier and higher than hoped for, even as the homeownership CPI has started to cool a little.”

“New immigrants,” said Richter, “largely Rent a home when you first arrive, rather than purchase homes, and so home prices have been pressured down by higher mortgage rates that are not compatible with the crazy-high prices in many markets.’

The Bank of Canada is expected to meet on the 10th of April to discuss interest rates. Economists predict that the rate will stay at 5 percent. 

“The BoC will require more than just a lousy couple of months of soft inflation data before deciding to pull the trigger on a rate cut and especially on meaningful rate cuts in a plural sense,”Holt, observed 

Rates to begin falling this summer?

Holt explains that “rent continues to soar. Likewise for shelter costs that account for about one-quarter of the CPI basket excluding mortgage interest. And no, the BoC cannot just ignore one quarter of the basket.”

Holt says rates are dropping too quickly “would be a high-stakes gamble that could easily backfire and add another black mark against Macklem’s leadership”Bank of Canada

Commenting on the recently released Bank of Canada’s surveys of business and consumer expectations, Holt said it’s obvious that Canadian consumers don’t believe in the bank’s 2 percent inflation target.

“Consumers signalled they expect inflation to be 3.1 percent five years out which is up by half a percentage point since the last quarterly survey,”Holt, Mr. 

“We all know that nobody can forecast where inflation will be five years from now, but the signal is that consumers don’t believe in the BoC’s 2 percent inflation target.”

Steve Tustin, editor for Rentals for Newcomers as well as contributing editor for Prepare for Canada. He was the former managing director of Storeys.comFormer senior editor of the Globe and Mail and Toronto Star.

*Prepare for Canada did not use AI-generated content to write this story; sources are cited and credited where possible.

© Prepare for  2024